Understanding Social Security

This federal program provides an important piece of most retirees' income. In fact, the decisions you make about when and how to take benefits can help fortify your financial security in retirement.

Quiz | January 2015

How Well Do You Know Social Security?

Social Security is coming under increased scrutiny because of its projected long-term financial problems. Suggested changes to the program have included gradually raising the normal retirement
age for full benefits to age 69, trimming benefits for wealthier retirees and raising the amount of wages subject to payroll taxes that fund the program. With thousands of baby-boomers turning 65 every day
for the next 14 years, according to the U.S. Census Bureau, the pressure is on to come up with fixes to ensure the program lasts.

So how well do you know Social Security? Take this quiz to better understand this federal program, which provides an important piece of most retirees' income. In fact, the decisions you make about when and
how to take benefits can help fortify your financial security in retirement.

How Well Do You Know Social Security?

Question 1 of 10

Under the current rules, you can collect retirement benefits as early as age 62. But your monthly benefit will be less than if you waited until 66 to take it, and your benefit will be reduced
further if you continue to work and earn more than the annual limit prescribed by Uncle Sam.

A. True

B. False

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How Well Do You Know Social Security?

Question 1 of 10

Under the current rules, you can collect retirement benefits as early as age 62. But your monthly benefit will be less than if you waited until 66 to take it, and your benefit will be reduced
further if you continue to work and earn more than the annual limit prescribed by Uncle Sam.

You're right!A. True is correct.

Sorry, wrong! is incorrect.

The right answer is A. True.

If you were born between 1943 and 1954, your normal retirement age for full retirement benefits is 66; that age rises if you were born later. You can collect retirement benefits as early as
62, but they will be reduced by 25% (and cut by 30% if you were born in 1960 or later). Plus, if you continue to work while collecting benefits prior to the year you reach 66, you will lose $1 in benefits
for every $2 you earn over government limits. In 2015, the annual earnings limit is $15,720. Once you reach your normal retirement age, you can earn any amount without affecting your benefits.

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Question 2 of 10

If you are divorced, you cannot collect retirement benefits based on your ex-spouse's earnings record.

A. True

B. False

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Question 2 of 10

If you are divorced, you cannot collect retirement benefits based on your ex-spouse's earnings record.

You're right!B. False is correct.

Sorry, wrong! is incorrect.

The right answer is B. False.

You can collect retirement benefits based on your ex-spouse's work history if you are at least 62 years old, were married at least ten years, have been divorced at least two years and have
not remarried (or if you did, that subsequent trip to the altar ended in divorce, death or annulment). Unlike married beneficiaries, the ex-spouse doesn't need to have applied for benefits, but the ex-
spouse must be eligible for benefits, which means he or she must be at least age 62. If you collect benefits before your normal retirement age, early retirement reductions and earnings limitations apply.

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Question 3 of 10

Married couples can time the collection of their Social Security benefits to boost retirement income and maximize survivor benefits.

A. True

B. False

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How Well Do You Know Social Security?

Question 3 of 10

Married couples can time the collection of their Social Security benefits to boost retirement income and maximize survivor benefits.

You're right!A. True is correct.

Sorry, wrong! is incorrect.

The right answer is A. True.

In general, the lower-earning spouse, usually the wife, should collect benefits early at age 62 – even though they will be reduced by 25% or more and subject to earnings limits –
and the higher-earning spouse should wait until age 70 to collect the biggest retirement benefit. Then, if the husband dies first, the wife will collect a full survivor benefit equal to 100% of what he
received. As long as she has reached at least normal retirement age, her survivor benefit will not be reduced, but her own retirement benefit will disappear.

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Question 4 of 10

Once you reach your normal retirement age (currently 66 for new beneficiaries), you can collect half of your spouse's benefit – whether or not you continue to work – and then
claim your own larger benefit later.

A. True

B. False

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Question 4 of 10

Once you reach your normal retirement age (currently 66 for new beneficiaries), you can collect half of your spouse's benefit – whether or not you continue to work – and then
claim your own larger benefit later.

You're right!A. True is correct.

Sorry, wrong! is incorrect.

The right answer is A. True.

If you collect a reduced benefit before your normal retirement age, Social Security will automatically give you the largest benefit available to you, whether it's based on your own work
record, your spouse's record or a combination of the two. But if you wait until your normal retirement age, you can restrict your application to spousal benefits only – worth up to half of your
husband's or wife's benefit – while your own benefit continues to grow at 8% a year until you reach age 70. At that point, you can switch to your own benefit, which will be worth 132% of what it
would have been at your normal retirement age. This strategy also applies to divorced spouses. If you wait until your normal retirement age to collect benefits, you can claim spousal benefits only on your
ex's earnings record while your own benefits earn delayed-retirement credits. Then you can switch to your own, larger benefit at age 70.

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How Well Do You Know Social Security?

Question 5 of 10

If you are currently receiving Social Security benefits and continue to work, your earnings are exempt from taxes.

A. True

B. False

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Question 5 of 10

If you are currently receiving Social Security benefits and continue to work, your earnings are exempt from taxes.

You're right!B. False is correct.

Sorry, wrong! is incorrect.

The right answer is B. False.

Sorry. Your earnings are subject to payroll taxes even if you are currently receiving Social Security benefits. For 2015, you pay 7.65% on your wages and your employer pays 7.65% on your
wages, up to the 2015 earnings ceiling of $118,500. If you earn more than that, the Social Security payroll tax disappears, but you and your boss continue to pay the 1.45% Medicare payroll tax on every
dollar you earn. Self-employed workers pay both portions of the taxes for a combined rate of 15.3% on the first $118,500 in 2015 and 2.9% over that limit. Single filers with earned income of more than
$200,000 and joint filers with earned income of more than $250,000 pay an additional 0.9% in Medicare taxes above those rates. And for retirees receiving benefits, up to 85% of your Social Security
benefits may be taxed when you file your income-tax return each year.

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Question 6 of 10

If you are eligible for retirement benefits and have minor dependent children, special Social Security benefits can help pay for college.

A. True

B. False

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Question 6 of 10

If you are eligible for retirement benefits and have minor dependent children, special Social Security benefits can help pay for college.

You're right!A. True is correct.

Sorry, wrong! is incorrect.

The right answer is A. True.

Yep, if you’re one of those fathers with a second family, you can take advantage of a special benefit. Here’s how it works: If you are collecting retirement benefits and you have children who
are 18 or younger, they too are entitled to Social Security benefits, worth up to the half the amount you collect. It's also possible for your kids to collect while you delay cashing in on your own benefit
until it's worth more later. If you are at least 66 by May 1, 2016, you can file for retirement benefits, enabling your dependents to collect theirs, and then immediately suspend your own benefits until as
late as age 70 to collect the maximum amount.

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Question 7 of 10

Even the Social Security system was not immune from the Great Recession. For the first time, Social Security paid out more in benefits than it collected in payroll taxes.

A. True

B. False

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Question 7 of 10

Even the Social Security system was not immune from the Great Recession. For the first time, Social Security paid out more in benefits than it collected in payroll taxes.

You're right!A. True is correct.

Sorry, wrong! is incorrect.

The right answer is A. True.

High unemployment and a resulting decline in payroll-tax collections took a toll on the Social Security program. Benefits exceeded revenues for the first time in 2010 – six years ahead
of previous projections – according to Congressional Budget Office estimates. But the Social Security system is expected to slip back into the black – at least temporarily – when the
economy recovers.

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Question 8 of 10

Social Security benefits were cut when tax collections fell short of projected benefit needs.

A. True

B. False

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Question 8 of 10

Social Security benefits were cut when tax collections fell short of projected benefit needs.

You're right!B. False is correct.

Sorry, wrong! is incorrect.

The right answer is B. False.

Benefits were not cut. In the mid 1980s, Congress increased payroll taxes in order to build up the newly created Social Security Trust Fund to prepare for the retirement of the baby-boomers.
According to the Social Security Administration, the trust fund holds about $2.8 trillion, as of the end of September 2015. That’s enough to supplement anticipated payroll taxes to pay out full benefits
until 2033.

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Question 9 of 10

So the Social Security Trust Fund is a whole separate entity that collects payroll taxes, pays current benefits and stockpiles surplus funds to pay future retirement benefits, right?

A. True

B. False

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Question 9 of 10

So the Social Security Trust Fund is a whole separate entity that collects payroll taxes, pays current benefits and stockpiles surplus funds to pay future retirement benefits, right?

You're right!B. False is correct.

Sorry, wrong! is incorrect.

The right answer is B. False.

But it's a trick question. The Old-Age, Survivors and Disability Insurance Trust Funds exist, but only on paper. They are merely accounting devices to keep track of tax receipts and benefit
payments. The revenue collected from payroll taxes is not held in a separate account. Rather, it is invested in special-issue U.S. securities, similar to U.S. savings bonds. The federal government uses the
invested cash to pay other debts. Although some critics are skeptical of this approach, the securities are backed by the full faith and credit of the U.S. government and earn interest, which is reinvested
in the trust fund.

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Question 10 of 10

To prevent Social Security from running out of money in the future, reformers propose:

A. Raising the retirement age for full benefits.

B. Increasing the payroll-tax rate and lifting the ceiling on earnings subject to Social Security taxes.

C. Cutting benefits for new retirees.

D. All of the above.

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Question 10 of 10

To prevent Social Security from running out of money in the future, reformers propose:

You're right!D. All of the above. is correct.

Sorry, wrong! is incorrect.

The right answer is D. All of the above.

If the Social Security Trust Fund runs dry sometime during the next 30 years as projected, revenues from tax collections would be sufficient to pay only about three-fourths of scheduled
benefits. In order to pay full benefits, Congress must restructure the program's finances. The most common recommended fixes are tax increases, benefit cuts, further delaying the age for full retirement
benefits, creating a new formula for calculating annual cost-of-living adjustments or a combination of all of these proposals.